MUDRA BANK --a few important points

The Prime Minister Narendra Modi launchedthe promised Micro Units Development
and Refinance Agency Ltd (MUDRA) Bank on 8 April, 2015 with a corpus ofRs20,000 crore and a credit guarantee corpus
ofRs3,000 crore. The launch was the
fulfillment of an announcement madeearlier by the Finance MinisterArunJaitleyin his FY 15-16 Budget speech.

How Can MUDRA Bank Make a Difference to
the Economy?

Most individuals, especially those living
in rural and interior parts of India, have been excluded from the benefits of
formal banking system. Therefore, they never had access to insurance, credit,
loans and other financial instruments to help them establish and grow their micro
businesses. So, most individuals depend on local money lenders for credit. The
loan comes at high interest and often with unbearable conditions, which make
these poor unsuspecting people fall in a debt-trap for generations. When
businesses fail, the borrowers become vulnerable to the lender’s strong-arm
tactics and other forms of humiliation.

As per NSSO Survey of 2013, there are
close to 5.77 crore small-scale business units, mostly sole proprietorships,
which undertake trading, manufacturing, retail and other small-scale
activities. Compare this with the organised sector and larger companies that
employ 1.25 crore individuals. Clearly, the potential to harness and nurture
these micro businesses is vast and the government recognises this. Today, this segment
is unregulated and without financial support or cover from the organised
financial banking system.

The principal objectives of the MUDRA
Bank are:

1.Regulate
the lender and the borrower of microfinance and bring stability to the
microfinance system through regulation and inclusive participation.

2.Extend
finance and credit support to Microfinance Institutions (MFI) and agencies that
lend money to small businesses, retailers, self-help groups and individuals.

3.Register
all MFIs and introduce a system of performance rating and accreditation for the
first time. This will help last-mile borrowers of finance to evaluate and
approach the MFI that meets their requirement best and whose past record is
most satisfactory. This will also introduce an element of competitiveness among
the MFIs. The ultimate beneficiary will be the borrower.

4.Provide
structured guidelines for the borrowers to follow to avoid failure of business
or take corrective steps in time. MUDRA will help in layingdown guidelines or acceptable procedures
to be followed by the lenders to recover money in cases of default.

5.Develop
the standardised covenants that will form the backbone of the last-mile
business in future.

6.Offer
a Credit Guarantee scheme for providing guarantees to loans being offered to
micro businesses.

7.Introduce
appropriate technologies to assist in the process of efficient lending,
borrowing and monitoring of distributed capital.

8.Build
a suitable framework under the PradhanMantriMUDRAYojanafor developing an efficient last-mile
credit delivery system to small and micro businesses.

Major Product Offerings

MUDRA Bank has rightly classified the
borrowers into three segments: the starters, the mid-stage finance seekers and
the next level growth seekers.

To address the three segments, MUDRA Bank
has launched three loan instruments:

1.Shishu: covers loansuptoRs50,000/-

2.Kishor: covers loans aboveRs50,000/- anduptoRs5 lakh

3.Tarun: covers loans aboveRs5 lakh anduptoRs10 lakh

Initially, sector-specific schemes will be
confined to “Land Transport, Community, Social & Personal Services, Food
Product and Textile Product sectors”. Over a period of time, new schemes will
be launched to encompass more sectors.

Some of the Offerings Planned for the
Future:

1.MUDRA
Card

2.Portfolio
Credit Guarantee

3.Credit
Enhancement

Can MUDRA Really Be a Game Changer for
India?

Yes it can. See the existing demographics.
Majority of Indians are poor and live in rural and interior parts of India.
Most are excluded from getting facilities that would be termed very basic, even
by Indian standards.

Most people do not have access to farmland
and in the absence of jobs, are left to their own creativity to feed themselves
and survive. They figure out ways to do odd jobs in exchange of money or barter
their services. Most of these people belong to scheduled castes, scheduled
tribes and other backward classes. It is to be noted that most of the micro
enterprises, retail or trading activity, are initiated and controlled by women,
with no exposure to education, formal training or access to any form of banking
support.

Now visualise this. If India could harness
this free spirit of enterprise and offer some guidance, support, training and
financial assistance, the potential to get an immediate jump in GDP is there
for the asking. Narendra Modi recognises this and was clear of the potential of
this low-hanging fruit.

If MUDRA can continue to retain focus on
the underprivileged and extend its reach to the interiors, it can well emerge
as a bigger success story than whatGrameenBank of Bangladesh ever was or will be.

There is an old saying that goes like
this: “Give a man a fish you feed him for a day, teach him how to fish and he
will never go hungry”. MUDRA Bank is a step by the government that can be a
game changer in giving birth to a new set of entrepreneurs, some of whom may
scale heights not imagined today. This is far better than giving subsidy, which
may seem welcoming at first, but does little to help an individual strive for a
better life. MUDRA is the way to go.

The modalities of functioning of MUDRA
Bank are in place and it has been decided that the funding activity will be
carried out by microfinance institutions. However, the small businesses have to
wait to get full information on Mudra Bank and have a clarity on who all are
eligible for loans and how to get the benefits of this scheme.

Recent Developments

·HasmukhAdhia, union financial service secretary said
that Mudra Bank will be first set up as a subsidiary of the Small Industries Development
Bank of India and later will be converted to a full-fledged bank through an Act
of Parliament.Adhiamade this announcement during a
‘roundtable on financing of innovations’ which was attended by chiefs of banks
and financial institutions, and also the President of India. AlthoughAdhiadid not disclose the details about theset upof Mudra Bank, he said that the Prime
Minister will launch it soon.

·MUDRA
bank has join hands with 19 state and regional level coordinators so as
to reach the small entrepreneurs who have limited branch presence and are cut
off from the general banking system. The initiative taken by the government is
expected to be helpful for the small and micro businesses. It is also expected
that these businesses will generate 10 times more number of jobs which are
normally generated by the big business firms/companies at present.